The EastAfrican has learned that the government has assembled a team of top officials from the Treasury and the Central Bank of Kenya to represent it in the negotiations. The British firm is represented in the negotiations by director of sales, Jonathan Garside, area sales director John Lucas, director of finance Keith Robinson and group task manager John Mitchell. The government is acquiring a 25 per cent stake in the Ruaraka-based De La Rue Currency & Security Print Ltd at an estimated cost of Ksh612 million ($9.13 million).

The deal was quietly approved by the Cabinet in May this year without any public discussion. It has turned out to be a controversial one, with critics wondering why the government had rushed to buy shares in a firm with which it has an existing contract — having only recently awarded it a $51 million currency printing contract. Also at issue is the fact that the government is committing the country to this multi-million deal without having conducted a due diligence on the company.

In May last year, De La Rue beat competitors from Austria, South Africa, France, Canada and the Netherlands to win a three-year contract to print 1.71 billion new look bank notes at a cost of $51 million. The price was almost three times lower than the price at which the company supplied notes to the government under the previous contract signed in 2003. According to the plan, the new currency was to be issued beginning July this year. However, eight months later, the project is yet to roll out, with the result that De La Rue has been enjoying huge margins between the old contract and the competitively procured one — supplying currency notes on the old terms of the single-sourced contract through short-term contracts.

Between 1966 and 1985, Kenyan banknotes were printed by Bradbury & Wilkinson of the UK, which was later acquired by Thomas De La Rue & Company Ltd in 1986. Since then, De La Rue International UK, which was renamed Thomas De La Rue & Co Ltd, has provided currency printing services to the Central Bank of Kenya. De La Rue International of the UK is one of the oldest companies involved in the production of currencies for around 100 countries and a wide range of security printing services.

In 1992, the company established De La Rue Currency & Security Print in Nairobi as a subsidiary to operate currency and security printing business in Kenya. The Nairobi subsidiary, which is 100 per cent owned by De La Rue International, operates a modern factory complex based in Ruaraka. It says its initial investment in the Kenyan operation was Ksh1.54 billion ($23 million) and that following an additional injection of Ksh910 million ($13.5 million) over the years, the total investment now stands at Ksh2.45 billion ($36.5 million) It estimates the value of fixed assets at Ksh732 million ($10.9 million).

In January 1993, the company signed a 10-year contract to provide current printing services to the government of Kenya. The minimum order under the contract was to be for the supply of 170 million banknotes each year. In 2002, following the expiry of the initial 10-year contract, the Central Bank of Kenya entered into a new 10-year contract with De La Rue. But on coming to power, the Kibaki administration cancelled the contract to allow international competitive bidding. Subsequently, the company was allowed temporary extensions to provide currency printing services to the Central Bank of Kenya on short-term contracts.

It is not clear which of the parties — the government or De La Rue — made the first move. But the official position is that the government had to move to acquire the 25 per cent stake in the company to pre-empt plans by De La Rue to close its Kenya operation. Apparently, De La Rue had informed the government that in order to win the competitive bid for the $51 million contract, it had to quote on the basis of costs of its plants in the rest of the world, which produce bank notes at much lower prices. And, with the printing business to have been moved elsewhere, and given that currency printing accounts for well over 90 per cent of the Kenya business, said De La Rue, it had no option but to close the Nairobi operation.

On its part, the government felt that the closure of the factory was not in the best interests of the country as it would lead to the loss of 300 jobs. A joint venture with De La Rue, it was also argued, would create a long-term strategic relationship that would ensure sustainability in currency printing.

Extract from the East African.